Update Country Report Curaçao 17 Sep 2018

Event

Full-year figures released by the Centrale Bank van Curaçao en Sint Maarten (CBCS) showed that Curaçao's economy contracted by 1.7% in 2017, following a decline of 1% in 2016.

Analysis

The central bank's report noted that GDP growth fell because of a decline in both domestic demand and net trade. In particular, exports declined, largely as a result of lower activity associated with tourism, air transportation and refinery activities. This drop in exports reflects long-term issues undermining Curaçao's growth prospects. An economic crisis in nearby Venezuela has led to a drop in tourist arrivals from that country, previously one of Curaçao's main tourism source markets. The brunt of this decline was felt in 2017, leading to a sharp drop in tourism earnings. In addition, a decline in activity at the Isla refinery, which is operated by Venezuela's state-owned oil firm, PDVSA, was also linked to Venezuela's economic problems, reflecting a lower amount of oil production and hence oil being refined at Isla. This in turn weighed on construction and development works surrounding the refinery.

The CBCS noted that falling activity in the private sector drove the economic contraction, commensurate with the decline in the tourism sector. Wholesale and retail trade, restaurants and hotels, transport, and manufacturing experienced the greatest declines. At the same time, inflation ticked up throughout 2017, ending the year at 1.6%, up from 0% at the end of 2016. This largely owed to an increase in food and oil prices, and particularly the rising cost of oil imports.

Two years of economic decline is set to weigh on investment in 2018-19, with correspondingly low prospects for economic activity. Although the effects of the sharp decline in Venezuelan tourism are beginning to pass through, this is unlikely to lead to sustained growth in this sector until 2019. With similar pressures remaining on the island's economy, we expect growth to remain muted throughout the remainder of 2018.

Impact on the forecast

This latest data support our forecast for a continued weakness in economic output in 2018-19.